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Japan’s Nikkei is leading the region with a 0.5% rise after the yen’s strength finally reversed. The safe-haven trade reversed in US trade as the Syria situation somewhat calmed, with some reports downgrading the threat of a strike from imminent to measured. This relieved equities from some of the pressure they’ve been under since the Syria threat escalated, while the yen lost ground after its recent surge.
USD/JPY printed a low of ¥96.82 in Asian trade yesterday but managed to reverse to a high of ¥97.91. The pair is threatening to push higher in Asia as we approach the business end of the week for Japan data. This morning we have received some disappointing retail sales data for Japan (-0.3% versus +0.1% expected). Weekly fund flow data was also released and showed a marked drop in Japan’s foreign bond buying, but a significant pick-up in Japan buying foreign stocks. However, foreigners buying Japan’s stocks and bonds also dropped off from the previous week. Perhaps the lack of improvement helps pile pressure on Japanese officials to act and weaken the yen.
We also have CPI, industrial production and jobs data due out tomorrow. CPI is expected to jump 0.7% (from 0.2%) which is quite a significant improvement. With inflation being the key ingredient for Abenomics, the CPI data certainly deserves some attention. Looking at equities in the rest of the region, strength from the US and Japan hasn’t quite lifted sentiment in the way many would have expected. The ASX 200 has shed 0.3%, the Shanghai Composite is down 0.2% and the Hang Seng is up 0.3%. It is clear that investors remain cautious about the Syria situation and this is being used by many as an excuse to remain on the sidelines.
Risk currency pairs also managed to recover in the Asian session, with AUD/USD trading within striking distance of the 0.90 level after printing a high of 0.898. Private capital expenditure numbers released this morning came in well above estimates (+4% versus 0.0% expected). While the headline smashed estimates with mining investment leading, manufacturing and other industries remain subdued. Intended spend for FY14 is up to $159.2 billion versus a previous estimate of $156.5 billion. However, some analysts were expecting a reading north of $160 million which makes this revision not quite as impressive. The RBA would have wanted to see non-mining investment pick up and make a greater contribution to the economy. To the downside, we are eyeing this month’s low at 0.8850 for AUD/USD as near-term support. To the upside, resistance is in the 0.90 region ahead of 0.925.
European markets are pointing to a modestly weaker open as Asia just struggles to regain its footing. The region is also likely to see some cautious trading given the pending Syria negotiations. EUR/USD remains relatively sidelined at 1.333 and GBP/USD at 1.554. On the European calendar we have German CPI, unemployment and European retail PMI all set to be released later today. At 17:55 today we get the August German unemployment report and the market expects an unchanged reading of 6.8%, while the economy is expected to lose 5000 jobs.
At 22:00 we get the latest German CPI read and the market expects inflation to tick down to 1.7% (from 1.9%), which in theory could send the EUR lower and support the DAX. German Buba President Weidmann will also be on the wires. However, the USD side of the equation probably deserves more attention with unemployment claims and GDP data due out. The GDP release will be the highlight of the week with expectations that it’ll be revised higher to 2.3% (from 1.7%). Fed member James Bullard will be on the wires later and could cause some movement on the USD front.
The local market has just been treading water for most of the session with a minor recovery in the miners neutralised by a fall in the financials. BHP Billiton has climbed 1.1%, RIO is up 0.3% and FMG has tacked on 1%. The positive mining capex numbers didn’t do much for mining services companies today as most of them a remain in negative territory.
All the big four banks have shed between 0.4%-0.7% and are helping put a lid on any attempts to a recovery. On the reporting front, Qantas has been extremely impressive today with its shares rising nearly 10% on the back of its FY results. However, given the stock was down over 35% since its year to date highs, then it’s not too surprising to see the above estimates release greeted by strong gains. The international arm looks to be on track with its commitment to breakeven by the end of FY14. FY13 halved its losses from a year ago to book a $246 million loss. The result illustrates that the Emirates deal is working and the strategic move to a hub in Dubai should pay off – and the one-off cost of the Dubai hub will drop out of the books next year, increasing earnings further. However, earnings abstracted from the domestic brand were weaker, falling 21% to $365 million over the year.